The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Peter Costello

Peter Costello

Treasurer

11 March 1996 - 3 December 2007

Transcript of 19/08/2007

Interview with Paul Bongiorno
Meet The Press

Sunday, 19 August 2007

SUBJECTS: Kevin Rudd's visit to strip club, regulation of mortgage brokers, interest rates, housing rentals, housing affordability, election, State debt, leadership, QLD council amalgamations, federalism, Higgins

BONGIORNO:

Good morning, Treasurer, and welcome back to the programme.

TREASURER:

Good morning Paul. Good to be with you.

BONGIORNO:

Going to that Kevin Rudd report, I mean, does it matter?  Do Australians care?

TREASURER:

Look Paul, I think this is something that I really wouldn't want to comment on.  It is a matter for Mr Rudd and I think I will leave it there.

BONGIORNO:

Has Col Allan ever taken you to Scores, New York, when you have been there?

TREASURER:

No, no.  I can honestly say that neither have I been there, nor has Col ever suggested that to me.  I find when I am in America on official business that they pack your programme pretty full.  I don't think you get much time for that kind of activity.

BONGIORNO:

Just as well.  Well, just going to the report today that you are going to call on the States to do something about low documentation mortgages.  What can be done?

TREASURER:

Well of course, mortgage law is run by the States as is property law – the conveyancing, the transfer of land system, the way you register mortgages and all of those sorts of things.  This is a matter for State law.  The States themselves have been talking about getting more regulation into this area.  The need to license mortgage brokers, to put on them disclosure obligations, the things that they must disclose to borrowers, the things they must take into account.  We would want to get a uniform law throughout Australia.  In 2006 a Ministerial Council of the States met to talk about getting a uniform law.  It is time that that is brought forward.  It is time that the States enact a uniform law.  And I am very concerned that some of these low-doc lenders may be pushing money on to people who they know are bad risks and I want to see that ended.

BONGIORNO:

Now, according to one report today, you are saying if the States don't act you will.  How can you if they don't?

TREASURER:

Well, we would say to the States that if they want to refer powers to us, then we would be willing to step in and take their powers and to legislate in this area.  I think it is important that it be done.  Let me make this very clear.  The Australian Government has responsibility of prudential regulation of the financial system.  We do that through APRA – the Australian Prudential Regulatory Authority – but outside of deposit-taking institutions and financial institutions are a whole lot of these originators who are just money lenders, basically, under State law.  And if you are going to license and regulate them, then it is going to have to be done under State law or otherwise the States should refer their powers to the Commonwealth.

BONGIORNO:

In the last couple of days you have repeated your warning to the banks not to take advantage of the situation on global markets and up their interest rates.  I am just wondering, these warning are coming so regularly from you.  Do you know something that maybe we don't?

TREASURER:

Paul, it is a complicated issue, if I can just explain.  I said earlier that the Commonwealth has prudential regulation on the banking system.  The banking system is well capitalised and highly profitable.  There is no need for any bank in the wake of what is happening in the United States to move its interest rate up.  That is the point I want to make.  

BONGIORNO:

(inaudible).

TREASURER:

(inaudible) if I may, because outside of the banking system there are what are called mortgage originators.  These are not banks.  These are not prudentially regulated.

BONGIORNO:

They have provided competition, haven't they?

TREASURER:

They have, and what they do is they go out and borrow money on the money market and they forward it to borrowers.  Now, some of these mortgage originators are actually raising their money in the United States – in the United States where there has been all of this fallout.  Now, in order to continue to raise that money in the United States they will have to pay a higher price.  If they have to pay a higher price, that may affect their borrowers here in Australia and they may in fact get hit by a credit crunch.  They may in fact not be able to borrow it.  So I am making this point: the fallout will come through some of these originators, but the fallout will not come through the banks and the banks are not entitled to use this as a reason to move their rates.

BONGIORNO:

On Friday the Reserve Bank Governor said he was more worried about containing inflation than stalling growth and didn’t rule out a pre-election rate rise.  Here is what he said:

Glenn Stevens: If it is clear that something needs to be done, I don't know what explanation we could offer Australian public for not doing it, regardless of when an election might be due.

BONGIORNO:

Treasurer, do you agree with that sentiment?

TREASURER:

Well, I agree with the sentiment that if it is clear something has to be done then any public official would think it their duty to do it.  Of course, I agree with that proposition, just as if it is clear to me as Treasurer that something has to be done to keep the economy strong, I can't imagine that I wouldn't do it.  I will do it.  But then to go on and to argue that this referred to a particular course of action, I think is stretching the bow a bit.

BONGIORNO:

Well was it not a warning, I mean, many observers saw it as a warning to both major political parties not to go on a spending spree – no more $6 billion in one campaign launch – what was it? $200 million a minute?   Do you take it as a clear warning to the campaigning parties, particularly maybe the Prime Minister who you have been worried about in the past?

TREASURER:

Well as Treasurer, of course I carefully adjust our Budget policy to meet our objectives.  And I think this year's Budget was the 10th surplus Budget I have introduced.  So Paul, I think that is more than any other person in the history of Australia.  I think the record is very strong.  And I think – as I laid down in this year's Budget – that it is important that we keep the Budget in surplus across the forward estimates.  We have a plan to keep it in surplus by 1 per cent of GDP at least and that would put us amongst the strongest budget positions in the developed world.

BONGIORNO:

When we return with the panel, the Government's attack on Labor's low rent scheme.  And the 'gotcha' of the week featured Kevin Rudd leading with his chin.

 

Rudd: Thank you Mr Speaker and it is good to have Gareth back in this Chamber, a Foreign Minister with experience.

Prime Minister: I might preface my question by observing it is interesting the Leader of the Opposition places a premium on experience.

 

BONGIORNO:

You are on Meet the Press with Treasurer Costello.  And welcome to our panel, Allison Carabine from radio 2UE.  Good morning to you (inaudible). 

CARABINE:

Good morning, Paul.

BONGIORNO:

And Steve Burrell from the Sydney Morning Herald.

BURRELL:

Good morning, Paul.

BONGIORNO:

The Labor Party's attempts to make the most of housing affordability as an election issue have produced a policy aimed at providing incentives for investors to build new housing and to then make it available at below market rents.

           

Kevin Rudd: I am confident this is the vehicle through which the Commonwealth once again puts its shoulder to the wheel in being path of the housing affordability solution rather than simply saying, ‘Not our problem, all over to the States.’

 

BURRELL:

Mr Costello, you have been critical of Labor’s plan.  What is the Government proposing to do about this problem?

TREASURER:

Well of course, the point I made about that plan was that the promise Kevin Rudd made to Roseanna Harris was completely false.  Completely and utterly false.  He went to visit somebody in their home, a lady by the name of Roseanna Harris, and told her that this plan would cut her rent by I think, $50 a week or $60 a week.  It won’t cut it by a dollar.  And the point I made was that that was a very callous thing to do, to use that lady as a prop and to make her a false promise.  Now, what the Government of course has decided to do in relation to these matters is we have a Commonwealth-State housing agreement which I think is $5 billion over the next five years which is for the construction of public housing.  We have rent assistance which I think is about $2 billion which is being paid to people who are actually renters.  And we are currently identifying land which could be used for the construction of new housing in a joint audit with Commonwealth, State and the private sector which will bring new supply on to the market.

BURRELL:

Well, of course, apart from the rental problem you have also got affordability of housing more generally.  Only this morning we see new figures suggesting that mortgage stress, even amongst middle income earners, will be double what it is now in 12 months time.  This is obviously a political problem for the Government, particularly if there is another rate rise?

TREASURER:

Well, various people put out their own definitions, and there is nothing magical about these definitions by the way.  They are definitions which are self-set, generally speaking.  The problem that most people are referring to in the housing market is high prices.  That is the complaint that is being made.  It is not that interest rates compared to 10 years or 15 years or so ago are high.  It is that prices have gone up because employment is strong and more people are coming into the market.  Now, whilst I don’t like the fact that prices are rising as against first home buyers – you have got to remember this – it is better to have prices rising in a housing market than falling.  If you have them falling you have got a US situation on your hands.

CARABINE:

That sounds Treasurer like you are blaming consumers for the problem of housing affordability at the moment?

TREASURER:

I am not blaming anybody.  I am saying for most Australians they would prefer the value of their house to be rising rather than falling.  The group that would like housing prices to weaken is not the group that is in the market, it is the group that is out of the market and wants to come in for the first time – the first home buyer.  And for those people of course, we have a $7,000 grant – a First Home Owners Grant – to assist them to get into the market.  I would like to see stamp duty relief for first-home buyers and I would like to see the construction of a lot more housing so that these people have greater choices to get into the market.

CARABINE:

But if there is another rate rise that would dent the Government's economic credibility.  Would it also mean that you would be kissing the election goodbye?  Could that kill off your electoral hopes?

TREASURER:

Well, I think it is important to hold these things in perspective.  The home mortgage variable interest rate of 8.3 per cent is lower than at any time under Labor, even lower than it was when we were in the worst recession in 60 years.  So to have the mortgage interest rate at 8.3 per cent when we are patently not in a recession, but we are in a strong employment market – it does show how far we have come since the Government's policies have been put in place.

BONGIORNO:

But does a history lesson help borrowers today?

TREASURER:

Well the point is this, Paul: that when you are looking at a mortgage interest rate it has got to be looked at in the context of the economy.  And in a strong economy you would normally expect rates to be higher than in a recession.  The fact that they are still lower than they were in a recession indicates how far economic reform has come.  And all of this could be put at risk of course by inexperienced or weak or muddle-headed policy from a new Government.

CARABINE:

Mr Costello, the all important CPI figures come out October 24.  Does that mean an October 20 election, October 27 as a second choice?

TREASURER:

I wouldn't speculate on that, Alison.

CARABINE:

But surely you are advising the Prime Minister on this matter?

TREASURER:

Well, the election can be held at any time I think till January 19, some time around then.  I don't think it will be held in January or over Christmas.  So that means that it is going to be held sometime between now and the beginning of December. There are only about 3½ months, I think, between now and the beginning of December.  So we are in a pretty narrow field here.

BONGIORNO:

Labor seized on the Reserve Bank Governor's sanguine views on State borrowing.  He says they are for a long overdue purpose.

Glenn Stevens: We need more supply of infrastructure over time for the economy to grow, otherwise we will be capacity constrained permanently.

CARABINE:

Treasurer, the Reserve Bank Governor is comfortable with the States spending on infrastructure.  Doesn't that explode the myth that the States would be to blame for an interest rate rise?

TREASURER:

The point I make is they should be spending on infrastructure and balancing their budgets.  Of course they should be spending on infrastructure. Nobody has ever said they shouldn't be spending on infrastructure.  My complaint is that they are borrowing.  What they ought to be doing is spending on infrastructure and balancing their budgets.  Now, you asked me a question a moment ago about keeping the Commonwealth finances tight and I said: ‘we are keeping the Budget in surplus by 1 per cent of GDP.’  Do you know that that is being completely undone by State budgets?  That is, the amount of money that the Commonwealth is saving and therefore adding to savings is the amount of money which the States propose to borrow and to detract from savings over the next four years.  So, Paul, it is netting itself out.

BONGIORNO:

Yes, but you are also borrowing, you have got $5.1 billion worth of borrowing out of the 07-08 Budget for bonds.  You are out there in the market.

TREASURER:

No, no, no.  I am afraid Paul, in net terms, the Commonwealth has no debt and is not borrowing and is adding to savings.

BONGIORNO:

When you go to the bond market you are borrowing, okay.

TREASURER:

No, no, no, Paul.  No, no, no.  The savings that the Commonwealth makes outweighs any gross borrowing and in net terms we have no borrowing and no debt.

BONGIORNO:

It is a good argument, because the States...

TREASURER:

It is not an argument.  (inaudible), Paul, it is not an argument,  it is a fact.  It is a fact.

BONGIORNO:

All right.  When we come back, on and off the record in the national capital.  How a dinner conversation hit the front pages.  And from The Australian newspaper’s web site, Nicholson drawing the pictures, and Paul Jennings doing the voices, there is this view of the relationship between John Howard and Peter Costello:

 

BONGIORNO:

You are on Meet the Press.  Peter Costello’s now famous dinner with three Canberra Press Gallery journalists ignited a new round of leadership tensions in the Liberal Party, but also put the spotlight on journalists and their ethics.

ABC Reporter Michael Brissenden: The Treasurer was in an expansive mood. We all still have notes of that discussion. Here's mine.

 

BONGIORNO:

Well Treasurer, just revisiting this issue which we dealt with during the week.  It is a problem is it not, of credibility if you have got three people with one version against you with your version?

TREASURER:

Well, look Paul, I am not going to go back over it.  I think you would have seen in the weekend press that most of the commentators took a view on this.  I think I would agree with most of the commentators and what they said.

BONGIORNO:

So you will be wary talking to journalists at dinners in future?

TREASURER:

Oh no, I will speak to journalists as I have on the same basis I have for the last 17 years, as you and I have, Paul.  You and I have had a lot of dinners over the years and you know that out of those dinners you don't report what I say and I don't report what you say.  I make this point to journalists.  If they are going to start reporting these dinners, the much more interesting part of these dinners is what the journalists say about their bosses and their channels.  I am not talking about you here, I am talking about others...

BONGIORNO:

Thank God for that.

TREASURER:

…and the journalists might not want what they say to be broadcast.

BONGIORNO:

I will take that as a threat.

TREASURER:

I am not talking about you, here.  I made that point.

CARABINE:

Mr Costello, the Prime Minister describes you as an honest and forthright man.  Do you ever tell fibs?

TREASURER:

Alison look, my record is there for 17 years.  You have interviewed me on a pretty regular basis.  I think every other journalist has over the last 17 years.  I think I have dealt with the issues.  I think the things that I have added to public policy are there for all to see.  I will let others judge me.

CARABINE:

So you don't think that you may have damaged your chances of ever leading the Liberal Party through these episodic bouts of leadership tension?

TREASURER:

I think reheating an alleged conversation of 2005 probably shows it was a slow news week.

BURRELL:

Mr Costello, on another issue, the Prime Minister has been intervening very actively in the State of Queensland on council amalgamations and Peter Beattie's reforms up there and also of course the Mercy hospital in Tasmania and various other issues.  Is this the new Federalism we are seeing from the Government?  And are you happy with this approach given that it is actually reversing some of the reforms the State Governments are trying to implement?

TREASURER:

Well, I think federalism has failed Australia in many respects.  I think it has led to duplication, a lack of accountability, and I would like to see these problems ironed out.  I would like to see the Australian Government take responsibility for the national economy and all of those things that are key to the national economy.  Now, this includes monetary policy obviously, fiscal policy.  But we have a situation where you have major export ports which have been clogged by State bungling - Dalrymple Bay is one of them.  The Australian Government has to take responsibility for Australia's trade and exports and yet we don't have any responsibility to resolve problems like Dalrymple Bay – the clogging of one of Australia's greatest export industries.  And I would like to see the Australian Government have more responsibility for key national economic infrastructure, for pricing, for access, for investment, because I think we can't take responsibility for the overall economy if we don't have the ability to influence key national infrastructure and export arrangements.

BONGIORNO:

But just on Peter Beattie in Queensland, I mean, obviously there is an economic reform, a tough decision.  You and the Prime Minister pride yourself on some of the tough decisions you have taken – which aren’t all that popular – isn’t that after all what Peter Beattie is trying to do with his amalgamations?

TREASURER:

Leave aside the amalgamation question.  Who has ever heard of a law that you will get sacked if you call a ballot?  Don't you think that is going a little too far?  Why doesn't Mr Beattie say, ‘all right, you can call a ballot, you can have a referendum, I will take it into account, I will do whatever I'm going to do.’  But I have got to say to you, Paul, if John Howard or I walked into the Parliament and said we are passing a new law that is going to mean you lose your job if you call a ballot or vote in a democratic plebiscite, you would have us up in the UN.

BONGIORNO:

I think Kevin Rudd agrees with you, it is a bridge too far.

TREASURER:

I think that is right.  I think some human rights lawyer would have us up in the UN or the ILO or something.  I think he has gone far too far.  I think he has got carried away with himself here, Mr Beattie, and I don't think the outcome of it will be good for his Government.  And I do think that it is very important that these people be given democratic rights.

BONGIORNO:

Mr Costello, just finally, very briefly, when you stand for the seat of Higgins, are you standing for the full three years?

TREASURER:

Oh, yes.  When I go to the electorate, I am asking them to put their trust in me and I will work for them as hard as I possibly can.  That is my pitch.

BONGIORNO:

Thank you very much for joining us today, Treasurer Peter Costello.  And thanks to our panel, Alison Carabine and Steve Burrell.  Until next week, goodbye.